You may have heard about these organizations and were confused about what they do and who they are. This column will give a brief explanation of Pharmacy Benefit Managers. There has been a great deal of legislation and more potential legislation regarding the regulation and oversight of these corporations. Hopefully, this column will give the reader a better understanding of the issues.
A Pharmacy Benefit Manager (PBM) is the “middleman” of the healthcare world. They are third-party administrators who manage prescription drug programs for health insurers, Medicare Part D plans, large employers, and other payers.
While they do not manufacture drugs or treat patients, they sit right in the center of the flow of money and medicine.
Core Responsibilities
PBMs operate in three primary areas to manage how you get and pay for your medication:
- Developing Formularies: They decide which drugs are “preferred” (covered) by an insurance plan and which are not. This often involves placing drugs into “tiers” that determine your out-of-pocket co-pay.
- Negotiating Rebates: Because they represent millions of members, PBMs have massive leverage. They negotiate with drug manufacturers to get discounts (rebates) in exchange for giving a specific drug a favorable spot on the formulary.
- Managing Pharmacy Networks: They decide which pharmacies are “in-network” and negotiate the reimbursement rates those pharmacies receive for dispensing medication to you.
How the Process Works
When you go to the pharmacy and the pharmacist “runs your insurance,” the pharmacy’s computer system talks directly to the PBM’s system in real-time. The PBM:
- Confirms if you are covered.
- Check if the drug is on the formulary.
- Calculates your co-pay.
- Tell the pharmacist how much the insurance will pay them.
Why They Are Controversial
While PBMs argue that they save employers and consumers money by negotiating lower prices, they have come under heavy scrutiny in recent years for several reasons:
| Issue | Description |
| Transparency | It is often unclear how much of the “rebate” money PBMs keep for themselves versus how much they pass on to the employer or patient. |
| Spread Pricing | A PBM might charge an insurance plan $100 for a drug but only pay the pharmacy $60, pocketing the $40 difference (“the spread”). |
| Direct Competition | Many of the largest PBMs are owned by the same companies that own major health insurers and retail pharmacies (e.g., CVS Health owns CVS Pharmacy, Aetna, and the PBM Caremark). |
Summary
In short, a PBM is the invisible hand that determines what drugs you can get, where you can get them, and how much you’ll pay at the counter. They are a massive part of why the economics of the U.S. pharmacy counter are so complex.
